S&P Global Inc. (NYSE: SPGI) and IHS Markit Ltd. (NYSE: INFO) announced Monday that the two firms have reached a definitive all-stock merger agreement that values IHS Markit at an enterprise value of $44 billion, including $4.8 billion in net debt. Shareholders in London-based IHS Markit will receive a fixed ratio of 0.2838 shares of S&P Global for each share of IHS Markit they own.

When the deal is completed (currently expected in the second half of next year), current S&P Global shareholders will own about 67.75% of the combined company and IHS Markit shareholders will own the rest.

At Friday’s closing price of $92.58, IHS Markit had a market cap of $35.9 billion. Excluding net debt, the transaction values the firm at $39.2 billion. The agreed price reflects a premium of around 6.2% to IHS Markit shareholders.

S&P Global CEO Douglas Peterson commented: “This merger increases scale while rounding out our combined capabilities, and accelerates and amplifies our ability to deliver customers the essential intelligence needed to make decisions with conviction.” S&P Global’s businesses include financial information and services including ratings and indexes (the S&P 500, for one) and commodity and energy brand S&P Global Platts. Peterson will be the CEO of the combined company.

Lance Uggla, board chair and CEO of IHS Markit, will remain with the company for one year as a special adviser. Uggla noted: “Our highly complementary products will deliver a broader set of offerings across multiple verticals for the benefit of our customers, employees and shareholders.” IHS Markit was created in 2016 by a merger between Colorado-based IHS and London-based Markit. One of the company’s flagship events is the annual IHS CERAWeek global energy conference.

The combined company expects to have 76% recurring revenue and realize annual balanced growth of 6.5% to 8% in 2022 and 2023. The new firm is targeting 200 basis points of annual EBITA margin expansion and expects to deliver annual cost savings of around $480 million.

According to the announcement, the combined firm expects to generate free cash flow of more than $5 billion by 2023 while targeting a dividend payout ratio of 20% to 30% of adjusted diluted earnings per share (EPS)and a targeted capital return of at least 85% of free cash flow from dividends and share buybacks.

IHS Markit currently pays a dividend yield of 0.73% and S&P Global pays a yield of 0.78%. Diluted EPS in the 2019 fiscal year totaled $0.0012. S&P Global’s diluted EPS in 2019 totaled $0.0086.

IHS Markit shares traded up about 3.8% in Monday’s premarket at $96.06, above the 52-week range of $44.81 to $95.05. The consensus price target on the stock is $87.88, and the company pays an annual dividend of $0.68 per share.

S&P Global shares traded down nearly 2%, at $334.91 in a 52-week range of $186.06 to $379.87. The consensus price target on the stock is $386.92, and the firm pays an annual dividend of $2.68.

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